The Independent's fate in the balance as O'Reilly sorts out financial crisis

I think The Independent is in play. All the signs point to its Irish-based owner, Independent News & Media, seeking some way out of what looks to be a terrible financial mess. Its senior executives have denied that they are seeking a seller for the Indy and its Sunday sister, but they would say that wouldn't they?

The evidence suggests otherwise. First, the company itself is looking shakier than I can ever recall, with its share price (on the Dublin exchange) having fallen steadily throughout the year from almost €2.50 to 73 cents as I write (and that's an improvement on a week ago). INM also needs to pay off some of its €1.4bn (£1.1bn) debt by May next year.

Second, the announcement by INM's chief executive, Tony O'Reilly, that he was prepared to sell off his company's lucrative Australasian holdings (APN News & Media) in order to pay down debt was a big signal of major problems. INM holds 39.1% of APN, publisher of Australian provincial papers and New Zealand's major title, the Herald, in Auckland.

Third, INM is hampered - in publicity terms as much as anything else - by the continuing pressure applied by its so-called dissident shareholder, Denis O'Brien, who has been demanding the sale of the Indy for more than a year.

Fourth, there is the state of the Indy itself, in both financial and circulation terms. It is losing, on conservative estimates, about £12m a year (and, according to today's Times, closer to £14m). That has been supportable because of bumper profits enjoyed by the rest of its UK division, notably the Belfast Telegraph.

But the Bel Tel is now in trouble too, with falling ad revenues, falling sales and a forecast that suggests things will get much worse in 2009. Can INM really go on losing more than £1m on month on the Indy titles? Indeed, what's the value in doing so?

Today's release of the ABC figures for October reveals the depth of the crisis at the paper, which has substantially worsened since its cover price was raised to £1. Its year-on-year sale was down 16.29% and the Sindy was down 21.41%. These are the worst figures for both daily and Sunday nationals.

But they do not tell the full horror story. In October, the Indy sold only 119,500 copies at its full rate (compared to 148,000 in the same month a year ago). It has certainly reduced its multiple sales (aka bulks) by at least 3,000 and reduced its foreign sales by 5,000, both commendable moves in this circulation climate.

However, the undeniable truth is that The Independent - recently relaunched in full colour under a bustling, experienced new editor, Roger Alton - returned a headline sale of just 201,000 for October. And there is no hiding the fact that it is performing worse than all its rivals in what is, admittedly, a fast-declining market.

It has also failed to attract as large an audience to its website as its rivals, mainly because its short-sighted management refused to read the runes and invest early enough in online development.

We do know that INM has been talking to several rival groups, ostensibly about sharing overheads. But my information, admittedly passed on from sources who demanded anonymity, suggests that some talks related to much more radical matters than merely sharing back-office facilities. They also referred to the sharing of editorial functions (as Dan Sabbagh also reported in The Times earlier this week).

Furthermore, though INM denied James Robinson's report in The Observer last Sunday, Mail considers bid for Independent, there was more than a grain of truth about the Daily Mail & General Trust's executives having taken soundings about the Indy's current state and status.

INM's chief operating officer, Gavin O'Reilly, described the story of the Mail group buying the Indy titles for £1 as "complete fabrication". In specific terms, that may be the case. But the rumours emanate from discussions between INM and at least four rivals publishers that are far from a fabrication.

Moreover, a story published in Ireland's Sunday Business Post gave detailed figures of coming cuts at the Indy and Sindy. It said INM "is targeting a 40% cut in the workforce" at its British titles, reducing staff numbers by 100 to 200 people. Writing staff would not be affected.

As Sabbagh pointed out, INM's reference to the Indy titles as one of the company's "underperforming divisions" was "an unusually frank turn of phrase" given Tony O'Reilly's usual public support for the papers. Their fate might well turn on what happens next in Australia, where the sell-off of APN may not progress smoothly.

And a Reuters article from Sydney today, Independent's APN stake sale a tough deal, indicated similar concerns. It pointed out that hopes of INM realising an anticipated A$555m (£240m) for its 39.1% stake in APN "is littered with challenges", which will give the leading bidder, Seven Network Holdings, "the upper hand in the deal".

A banking source quoted by Reuters said: "It won't be easy for them. There has been other media assets on the market for a while... APN has probably realistically been looking for buyers now for quite a while."

INM's line is that it had "no imperative to sell" and was likely to launch a formal auction and sale process only because it received "unsolicited approaches".

A second banker quoted by Reuters was sceptical about INM achieving a good price for its stake. He said: "If Independent needs cash quickly the market is always a buyer. The reality is it has to be at a discount... Ultimately, the Irish wants to get some cash (quickly) the trade buyer may actually pick up the Irish stocks pretty cheap."

Meanwhile, the Indy and Sindy soldier on with their executives and journalists doing their level best to publish papers as they await the outcome of their owners' financial juggling. That they go on producing high quality work is a tribute to them.